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Bloomberg BNA

CEO Pay Ratio Disclosure: A Pain for Companies

Oct 31, 2017

Companies that must disclose the ratio of CEO compensation to that of the median employee’s are finding the calculation difficult, and they’re not receiving much help from the federal agency imposing it, analysts say.

“There was hope with the new administration that this rule would go away, but unfortunately it hasn’t,” Sharon Podstupka, a principal and head of communication at New York-based compensation consulting services firm Pearl Meyer, told Bloomberg BNA.

“Companies seem frustrated about this particular exercise,” Podstupka said. “This disclosure, from an investor and proxy adviser standpoint, is relatively meaningless.” This tracks with the broader argument from critics that this number isn’t necessary for shareholders to make decisions.

These problems and criticisms seem to have triggered a bout of corporate procrastination. About three-quarters (76 percent) of the companies Pearl Meyer recently surveyed haven’t even “discussed how to communicate the ratio internally and externally,” the firm said Oct. 24. That could be a problem when the numbers are reported. The same Pearl Meyer survey of 216 senior executives and 60 outside directors showed 56 percent of companies with a CEO-to-median-pay ratio of above 100 to 1.

In Podstupka’s view, comparing the median employee’s compensation, which typically does not include things like stock options, with that of the CEO is “comparing apples to oranges.”

Podstupka said “companies should realize how this will be read, and take the opportunity to educate their workforce on the basics of compensation and why comparisons are an unproductive exercise.” Podstupka added that “the media will have a field day with this from a pay and equity standpoint.”